Auto sector bounce good news for Canadian factories in November

A Chrysler Group LLC employee works on the assembly line during the production launch of Chrysler vehicles at the assembly plant in Brampton January 7, 2011 file photo.Mike Cassese

OTTAWA (Reuters) - A revived auto sector boosted Canada's manufacturing sales in November and helped prevent a slide in wholesale trade, a trend that may continue into 2014 as a weaker Canadian currency and strengthening U.S. economy spur activity.

Factory sales jumped 1.0 percent to C$50.5 billion ($45.9 billion) in the month, the highest level in nearly two years and approaching levels typically seen before the 2008-09 recession, Statistics Canada data showed on Tuesday.

The gain was well above the expected 0.3 percent advance.

Analysts warned the numbers are not quite as rosy as they appear at first glance. The volatile aerospace industry accounted for much of the gain in factory sales, shooting up 21.3 percent. But that reflects production over several months and will therefore not necessarily be reflected in November's gross domestic product (GDP) figures.

"Recent gains in manufacturing sales are encouraging with underlying conditions, including stronger growth in the U.S. economy and a weaker Canadian dollar, still supportive for the sector in the near term," Nathan Janzen, an economist at the Royal Bank of Canada, said in a note to clients.

The Canadian dollar, which hit four-year low overnight, firmed immediately after the reports. It later traded at C$1.0976 to the greenback, or 91.11 U.S. cents, still weaker than Monday's close of C$1.0951, or 91.32 U.S. cents.

But ignoring the outsized jump in aerospace sales and taking into account the sluggish, 0.2 percent rise in inventory accumulation, Janzen added: "this still points to little support from the manufacturing sector in the November GDP report."

Still, manufacturing sales were up 0.7 percent in volume terms. Motor vehicle sales, which are a more reliable gage of the health of the manufacturing sector, increased by a hefty 5 percent, the highest since November 2007.

Statscan said the motor vehicle industry comprised nearly 10 percent of total manufacturing in November after falling to 4 percent during the 2008-09 recession.

The data comes one day before a hotly anticipated Bank of Canada interest rate decision and argues against monetary-policy easing, said Derek Holt, vice-president at Scotiabank Economics.

"The broad takeaway is that this adds further reason behind why the BoC is likely to be highly reticent to engineer a rate cut," he said.

The bank has kept its rate on hold since 2010. While no move is expected on Wednesday, some analysts see a chance the bank will sound more dovish in its statement.

Canada has long recovered from the effects of the global financial crisis but its economy has had ups and downs since then, with exports failing to fully recover and investment lagging.

The first sign of sustained strength came in the third quarter of last year, with 2.7 percent annualized growth. The fourth quarter could show slightly lower growth, analysts say. The economy is now expected to have expanded by about 0.2 percent in November, down from 0.3 percent in each of the previous two months.

WHOLESALE FLAT

Canadian wholesale trade was flat in November from October, as a 2.5 percent jump in motor vehicle sales helped offset lower sales in five subsectors representing 63 percent of total wholesale activity.

"The transport industry has been one of the few bright spots in 2013 and will likely continue to benefit from improved U.S. demand, though we look for other manufacturing-intensive industries to pick up the slack," he said.